When a consumer files a personal bankruptcy, the automatic stay protects him or her from collection efforts by creditors and collectors. However, if the debtor files a Chapter 13 case, his or her co-debtors get the benefit of the “co-debtor stay.” The co-debtor stay protects the family members, friends or others who co-signed loans with the debtor while the Chapter 13 case is pending. This means that the creditors and collectors cannot pursue collection efforts against the co-debtor, but it does not impact the co-debtor’s liability. Thus, when the Chapter 13 case is concluded, the co-debtor may still be obligated to pay the loan.
It is important to understand that there are certain exceptions to the application of the co-debtor stay. For instance, if the debt was incurred in the “ordinary course of business” by the debtor, the co-debtor stay does not apply. Additionally, taxes are usually not considered to be a consumer debt, so they are still collectible.
The statute governing the co-debtor stay is 11 U.S.C. §1301.
The Following Elements Must Be Met for the Co-debtor Stay to Apply:
- The individual debtor files a Chapter 13 case
- The debt is a consumer debt that was incurred for personal use
- The co-debtor is an individual
- The debt was not incurred in the ordinary course of business
- The Chapter 13 case is pending (it has not been closed, dismissed or converted to a Chapter 7
If the above criteria are met, the co-debtor stay will be effective for the duration of the Chapter 13 repayment plan.
If you are considering filing a bankruptcy and you need help determining which type of filing would be best for you, contact Fitzgerald & Campbell to schedule an appointment. We do not offer just one debt relief option, we don’t push you in one direction. If bankruptcy right for you, we will tell you. If it’s not, we will tell you that. If bankruptcy is your get out of debt plan, it needs to be done right. It needs to be in the hands of experienced lawyers who have been there before. Contact us today!